We received a ton of similar questions following the Oct. 4 Question of the Day on the necessity of keeping a gambling log. Many submitters pooh-poohed the idea of a log, claiming that the win-loss statements from the players clubs at the various casinos they frequent would certainly suffice for proof, even in an audit.
Wrong. Very wrong.
This is the last question we'll answer (for a while, anyway) on gambling and taxes. Our book Tax Help for Gamblers by Jean Scott and Marissa Chien is on sale now for $24.95 (LVA members can get it for $12.48 through the end of the month). So if you want the whole story, which you should, spring for the book. But here, we list the reasons that you need a gambling log and can't, with any assurance of success, rely on win-loss statements.
First of all, many tax-court decisions have upheld the IRS position that casino win-loss statements don’t substitute for a gambling log. Why? They cover only the time you played with your slot club card inserted. They don't and can't cover play without a card inserted. They don't cover table-game players who aren't rated (and rating table-game play results in inaccurate estimates).
Secondly, casino win/loss statements vary greatly. There’s no standard form for the casino to use. Some are quite detailed, broken down by day or session. Others. however, merely give one total yearly win/loss figure, and sometimes this is only an estimate based on theoretical machine hold, rather than your actual wins or losses. The book says, "Still others may give you your lifetime total, rather than just one for the past year. Many statements are notoriously inaccurate and incomplete, often not counting hand-pays and/or W-2G jackpots, but not making that fact known. A few we get match our own records fairly closely; most seem to have little relationship to our own extremely detailed records."
Third, the casinos insert plentiful disclaimer language at the bottom of the statements, which the courts use to devalue them as proof of wins and losses. "The casinos don’t want to stick their necks out on any issue if they don’t have to, but it’s also difficult for a casino to produce an accurate win/loss statement anyway, since it has no assurance or proof that a gambler uses his/her card all the time."
In short, the IRS considers win-loss statements as supporting evidence only. They usually won't get you through an audit.
Finally, here's what the book says about the danger of relying on win-loss statements.
"On the one hand, they can get a taxpayer off the hook for not having good records, but that creates other problems. Right now, there is a general trend within the IRS to accept these statements, but then they use your gross coin-out as your win figure, a much bigger one than your session total win would be if you kept good records.
"In Chapter 4 we talk at length about the financial disaster a large gross gaming win figure can bring, because of the increase to your AGI (Adjusted Gross Income). This isn’t a problem just on the federal return, but on many state returns, as well. People in states that don’t allow gaming losses to be deducted on state returns may be hit with unbelievable tax bills, because of high gross gambling wins even if they use session win figures.
"When the IRS and/or the state (or even an uninformed tax preparer who isn’t familiar with gambling issues) decide to use the win/loss statements, some real horror stories have emerged. Using coin-out figures is counting every hand on a video poker machine or every pull on a slot machine as a 'session,' even those that result in a push (meaning a tie, or winning the same amount as your bet). Obviously, that’s not a reasonable stance. It would be like counting every hand at a blackjack table or every spin of the roulette wheel.
"But it has caused many taxpayers to have high tax bills, or to have to go to extreme efforts to fight one. Since it doesn’t pay to give the government any more information than necessary, I recommend that you keep good records yourself. Then you won’t need to show auditors your win/loss statements."
